Black Coffee: Armageddon Can Wait

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.

Okay, away we go …

“Let the American people go into their debt-funding schemes and banking systems, and from that hour their boasted independence will be a mere phantom.”

— William Pitt, upon the launch of America’s first central bank in 1791.

“The American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.”

— William E. Simon

Credits and Debits

Credit: At Friday’s closing bell, the Dow and S&P both finished in the green for a sixth consecutive day, while the Nasdaq — although down for the day — still had its best week since 2011. And to think, earlier this month Wall Street snowflakes were worried that the markets were on the verge of a total meltdown. Pshaw!

Credit: Hey … I don’t mean to rain on the bulls’ parade, but if history is any indication, then current market conditions are flashing a giant warning sign. According to Bill Holter (link: subscription required), “The market panics of 1929, 1987, 2000, 2008 all had one thing in common: volatility picked up, and the crashes all came from drastically oversold conditions.” Er … that’s two things, Bill — but your point is well taken.

Credit: For his part, Paul Craig Roberts says the only reason why markets haven’t already burrowed into the Earth’s molten core can be summed up in three little words: Plunge Protection Team. That’s right; Paul says there is blatant government intervention with the free market. Hmm. By the way, Mr. Roberts is not your typical tin-foil hatter — he used to be the Assistant Secretary of the US Treasury for Economic Policy.

Debit: Of course, the stock market isn’t the only thing that’s inflated — consumer prices are climbing so fast that they’re only now actually beginning to show up in the government’s highly-tempered inflation figures, which say inflation is rising 6% on an annualized basis. Suuure it is. I guess the wonky bureaucrats who came up with that number don’t shop for gas or groceries. Or have kids in college. Or visit the doctor.

Debit: Then again, the US inflation rate is nothing compared to what’s going on in the People’s Socialist Paradise of Venezuela, where hyperinflation has rendered its national currency, the bolivar, utterly worthless. As a result, the Venezuelan economy has collapsed and its social fabric is now tearing apart at the seams, as violent highway robberies of produce and other food trucks have become commonplace. Sad.

Debit: Venezuela’s economy isn’t the only thing that has collapsed — so has interbank lending. In fact, it has dropped dramatically since the start of the new year; more than 80%. There is now so little lending between banks that the practice has almost come to a complete stop. No, really. See for yourself:

(click to enlarge)

Credit: Strange, isn’t it? If I didn’t know any better I’d say the banks no longer have faith in the solvency of their fellow institutions. But that’s just me.

Debit: Speaking of solvency — or, more appropriately, “insolvency” — Americans’ debt burden increased for the 14th straight quarter to a new record high of more than $13 trillion. In case you’re wondering, the IOUs covered almost every form of debt imaginable — but the biggest hitters were mortgage, auto, student and credit card debt. Imagine that.

Debit: Not to be outdone, America’s politicians did their part to increase the National Debt by voting to put $1.2 trillion on the US Treasury’s credit card next year. Apparently, those same pols don’t care that the companies issuing that plastic — that is, other nations who buy US Treasury bonds — are becoming increasingly reluctant to raise our existing credit limit. Eventually, there will be no more credit. Then what?

Debit: According to the Nikkei Asian Review, China’s oil-for-yuan exchange “is welcoming all parties wanting to break with US dominance.” The message can’t be any clearer. And yet, the news, which will further erode America’s credit worthiness — not to mention the US dollar’s purchasing power — in the coming years, is all but overlooked by America’s mainstream media. Ignorance is bliss, I guess.

Debit: However, according to Reuters, a spokesman for the China Securities Regulatory Commission says the actual start date will be March 26th. Either way, it’s not good news for the petrodollar or Americans’ artificially-inflated standard of living — both of which are entirely dependent on the continued availability of willing creditors, foreign and domestic.

Last Week’s Poll Result

Is the nine-year stock market bull run finally over?

Yes (49%)

I’m not sure. (33%)

No (19%)

More than 1300 people answered this week’s survey question and essentially half of all Len Penzo dot Com readers believe stocks have entered a bear market. Another 1 in 3 aren’t sure. One thing is certain: If interest rates continue rising, then the bull market in stocks is definitely living on borrowed time.

The Question of the Week

If you could visit only one country in South America, which one would it be?

Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach me at: Len@LenPenzo.com

Sara, this is related to the story of how the baker’s dozen came to be. I was told that bakers who shorted a customer a roll or two in the bag would be put to death. So just to be safe the smart bakers decided to throw in an extra roll with every dozen.

It’s not just inflation. Quality in everything we buy is going to hell. Faucets used to last 30 years or longer. Now you’re lucky to squeeze 7 or 8 years out of them. Water heaters used to last 30 years. Good luck getting 15 from them today. Appliances used to be good for 25 years. Not anymore!

Good point. The inflation numbers also don’t take into account improvements in productivity. Technology has enabled factories to churn out products at lower and lower cost every year, and robotics have greatly improved production capability. So why aren’t we all enjoying deflation in the price of everything? It’s because all of those productivity improvements ares being consumed by the government and returned to the rest of us in the form of waste, fraud and wealth redistribution.

My wife and I have really noticed a decline in the quality of clothing as well. Everything is paper thin. I’ve worn Lee Jeans my whole life. The last 2 pairs I bought got 10 inch long tears in them after 2 washings- pure junk! Even the quality name brands are getting worse.

You make a great point, Kenny. Unlike the costs of virtually every other healthcare procedure, the prices for LASIC eye and plastic surgery have gotten less expensive over time. There’s a reason for that.

I bought a flannel night gown from L L Bean. It was $50. and the fabric was advertised as flannel but it was like gossamer silk. Ripped up the side, didn’t keep me warm. I went on ebay and bought a new in the package 1960s flannel nightgown for 2/3 the price of the LL Bean nightgown and it is WONDERFUL! The fabric is thick, warm, strong. I’ve used it, washed it, and even after months of use it is better quality and condition than the LL Bean NEW nightgown. I’m headed back to ebay for another vintage gown, and to thrift shops, yard sales and estate sales for better quality clothing at dirt cheap prices. New things are mostly poor quality junk. Buying vintage, new old stock, or preowned is better for the environment, one’s wallet, and America’s balance of trade.

Disclaimer

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